A Fox Deal Would Test Disney

By Jennifer Saba

Dec. 13, 2017

Disney’s chief Mouseketeer is about to face his biggest test. The $160 billion media conglomerate is close to striking a deal to acquire parts of Rupert Murdoch’s Fox empire, pegged at $60 billion by CNBC. Some would be an odd fit, and regulators may not like Disney expanding in sports and movies. Boss Bob Iger has his work cut out.

If scale is coin of the realm in media, then it is easy to see why Mr. Iger might be eager to bulk up with 21st Century Fox’s TV shows and films. Fear is also a pervasive motivator. Netflix’s success as a streaming service in gathering 100 million global subscribers — coupled with its heavy spending, up to $8 billion next year, on content — is driving rivals into big deals.

Image

CreditDrew Angerer/Getty Images

Picking off parts of Fox would come with considerable risks. For starters, not all of Fox’s cable networks mesh with Disney’s fare. The Mouse House is known for keeping tight control of its family-friendly brand. Fox peddles edgier programs with series like the blood-spattered “The Americans” and the raunchy “It’s Always Sunny in Philadelphia.”

Disney’s cable outlet ESPN is one of the most popular networks in the United States, yet subscribers are declining. But adding Fox’s regional sports channels would expose Disney even more to the rising cost of media rights — expected to increase nearly 6 percent to $20 billion in North America alone, according to PwC — and the overall drop in ratings for some franchises like the NFL.

There is also the question of whether Disney could manage the politics. Government watchdogs fresh from suing AT&T to block its $85 billion acquisition of Time Warner, will be on notice. Together, Disney and Fox studios have accounted for more than 30 percent of movie-ticket sales this year, according to Box Office Mojo.

Much depends on Mr. Iger himself. The Disney chief executive is due to leave in July 2019 but may extend his contract again if this deal occurs. Investors ought to hope he does. So far, Mr. Iger has been a savvy acquirer, snapping up Marvel, Pixar and Lucasfilm. Even so, carving up Fox would be in a different league.

Jennifer Saba is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.